Credit cards are ubiquitous in the United States, and financial advisory clients are likely to have at least one in their wallet. And while many consumers may know about the rewards they earn on the credit cards they hold, they might not be aware of the opportunities that maximizing their rewards could offer. In fact, through a combination of credit card sign-ups and regular spending, individuals can earn thousands of dollars in cash back rewards or travel benefits each year. Accordingly, financial advisors have an opportunity to provide significant ongoing value to clients by investing the effort into helping clients find the best card(s) to maximize rewards based on their personal spending habits.
Credit card rewards come in three types: cash back, travel points/miles, and transferrable points that can typically be used for either cash or travel. Each of these can be appropriate for different types of clients. For example, clients who crave simplicity or have little interest in travel might find cash back rewards most useful. Other clients who are accustomed to economy-class airfare and only dream of flying in business or first class may want to maximize travel credit card rewards instead, to get an experience that they would not be able to have otherwise!
Rewards can be earned through sign-up bonuses and regular spending with the card. Credit card sign-up bonuses (which can be worth more than $1,000 in cash or travel expenses per card) are the fastest way to earn rewards, typically offering a bonus for spending a certain amount of money in a given period of time. For regular spending, credit cards either offer a fixed rate for spending on the card (e.g., 2% cash back for all categories of spending) or a variable rate based on the particular category of spending (e.g., 4% cash back for every dollar spent on travel, or 3% cash back for every dollar spent at restaurants).
For advisors, cash flow discussions with clients can be a good opportunity to broach suitable credit card reward programs. Advisors can discuss not only what clients are purchasing, but also how they are paying for those purchases. This can reveal important information to help advisors craft a sensible rewards strategy for clients, including the client’s regular credit card spending (to gauge their ability to meet spending requirements for sign-up bonuses), which categories of purchases (e.g., groceries, gas) they make most often (to find cards that offer bonus rewards in these categories), and whether they are planning any large one-time expenses (that could be used to meet sign-up bonus spending requirements by themselves).
In addition to understanding a client’s spending patterns, it is also important to gauge their interest in managing credit card rewards on an ongoing basis. While some clients might be interested in applying for multiple new cards each year to build up points and miles through sign-up bonuses, others might be less interested in applying for cards and would instead prefer earning rewards on a single card. Either option can be profitable for the client, so it is important that they are comfortable with the process (so that it will be easier for them to stick to the strategy in the first place!).
Ultimately, the key point is that working with clients to devise a credit card spending strategy that maximizes available rewards can help advisors demonstrate ongoing value to attract and retain clients. Because, at the end of the day, what client wouldn’t want to work with an advisor who can help send them on a ‘free’ vacation each year?